I was catching up with an analyst-friend recently and finding out how he is reading the current business environment. Needless to say, the recent Mumbai attacks have added to the woes of Indian It companies, with customers postponing trips, re-evaluating closure dates etc.
With regard to the overall situation, like everyone else, he too felt that we are in for a prolonged period of weak demand, and hence opined that the larger companies with deeper pockets would be able to tide over better.
Which brought us to the topic of niche players, who were some years back, the flavor of the season. Every industry watcher and strategist recommended that if you don’t have scale, then develop a deep specialization.
In principle, I still believe that this holds true. However, companies have probably faltered in its implementation. So, what transpires is that niche players do the hard work of exploring new areas and trying to build capabilities ( which are unfortunately not deep enough, or unique enough), and in some eays, create a market opportunity, and when the opportunity becomes serious enough, the scale players just swoop down and grab the space.
Take independent testing or IMS, today the Infosys’, Wipro’s and TCS’ have much larger practices in these areas than any “pioneering” niche player.
The solution or way forward therefore in my view is not to abandon the niche strategy but to try to build a genuine differentiation in your delivery capability, and anticipate that competition will come by eventually, especially from the big players.
This is espcially critical, and probably that much more challenging, for services companies.
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Continuing on the niche strategy approach, I also think such players are able to demonstrate more customer focus. I believe this is due to a combination of factors – better understanding of the “niche” which automatically allows them to give more relevant and customized suggestions. Plus, with most of the players being small, they find it easier to be flexible and attentive to the customer’s needs which is a huge value-add. Stressing on these factors will help towards differentiating especially from larger players.
Truly agree with the fact that, if you do not have the scale, then go niche. This strategy has worked (and is working) for a significant number of companies. To highlight a few instances in the IT product space, companies are able to identify and capitalize on a niche that is not addressed by bigger companies. This also helps the bigger players in that they are able to offer a ‘whole product’ to their customers or offer a better value proposition while going after new business. In regions like EMEA and APO which are characterized by heterogeneous markets, need local solutions around taxation, regulatory compliance or support for local standards, niche players understand the market better, exhibit greater nimbleness and hence able to reduce the time-to-market.
More often than not, if the space is attractive enough, there is a possibility of bigger companies getting into this space as part of their product expansion strategy. This is where the niche player have to guard themselves and need to be proactive in ensuring that they stay ahead of the market needs and try and develop a ‘whole product’ on its own (to again complement the bigger players) through constant innovation in product offering, implementation and local support. Bigger players can thus be dissuaded and forced to deploy their limited resources on developing the core product that fits across markets while partnering with the niche players for value added offerings.